Reopening stocks from airlines to cruise operators are getting hammered as Delta strain drives surge of infections

airport coronavirus
Airline stocks struggle Monday.

  • Shares of cruise operators and airlines were hit Monday as COVID-19 infections ramp up worldwide.
  • Carnival, American Airlines and Expedia were among the stocks that slumped on worries of new virus infections.
  • The CDC on Monday warned travelers to avoid going to the UK because of rising infections.
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Shares of airlines, cruise operators and other travel companies slumped Monday during a selloff set off in part on mounting cases of COVID-19 infections worldwide, highlighting concerns about recovery in the industry and in the global economy.

American Airlines lost 4.4% and cruise operator Carnival fell 5.4% as part of a broader slide in US stocks that saw the Dow Jones Industrial Average plunge by more than 900 points during the session. On the Dow, airplane maker Boeing moved 5% lower.

Expedia Group, the online travel bookings site which also runs Hotels.com and Trivago, gave up 2.5% and hotel chain Marriott declined 3%.

Meanwhile, Carnival, Norwegian Cruise Line Holdings fell 6% and Royal Caribbean Cruises lost 4.6% after a US appeals court ruled late Saturday that cruise restrictions put in place during the pandemic could continue in Florida, according to the Associated Press.

Travel stocks were hit as countries worldwide report rising infections of coronavirus from the Delta variant, which health experts say is the most transmissible strain yet. Infections in the US were rising in all 50 states, with Los Angeles County, the largest in the country, reimposing indoor mask mandates. Delta Air Lines declined 3.7% and Southwest Airlines gave up 2.5%, weighing on the US Global Jets ETF which fell 3.9%. COVID-19 cases have surpassed 190 million.

The headwinds battering travel stocks also helped drive a plunge in oil prices, which are being hit with supply and demand concerns as OPEC+ over the weekend agreed to boost crude output.

“Jet fuel demand will struggle as international travel is not happening anytime soon, especially given how several Americans are struggling to get their passports renewed even with expedited services. Even domestic travel to Hawaii is losing appeal given the limited availability for car rentals, lack of hospitality workers, and extreme price hikes for lodging and dining,” said Ed Moya, senior market analyst at Oanda, in a note.

On Monday, the US Centers for Disease Control and Prevention advised Americans against traveling to the UK because of the spread of COVID-19 in the country.

The UK recorded more than 50,000 new cases for the first time in six months on Friday. Travel stocks there on Monday dropped after the UK government said fully vaccinated travelers entering from France must still quarantine, a move made as French cases increase. France on Sunday posted a third day of more than 10,000 new infections.

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Fundstrat’s Tom Lee says another epic rally in stocks hit hardest by COVID-19 could be coming soon

Hilton Hotel
  • Fundstrat’s Tom Lee said stocks in sectors hit hardest by the pandemic like travel and retail may be due for a rally. 
  • The head of research explained that the third wave of COVID-19 cases may be peaking in the US. When this happened after the second wave, epicenter stocks rallied shortly after, he said.
  • “From a market’s perspective, a rolling over of COVID-19 should be a “risk-on” signal for epicenter stocks,” said Lee. “The reason, naturally, is that epicenter stocks are more sensitive to lockdowns and benefit from economic re-opening.
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History shows that another rally for stocks hit hardest by the pandemic could be on the way. 

That’s according to Fundstrat’s Tom Lee, who wrote in a note to clients on Monday that “epicenter stocks,” or stocks in sectors like travel, retail, and services, could be poised to gain in the near future. 

The head of research explained that the third wave of COVID-19 cases may be peaking in the US. When this happened after the second wave, epicenter stocks rallied shortly after, he said. 

“From a market’s perspective, a rolling over of COVID-19 should be a “risk-on” signal for epicenter stocks,” said Lee. “The reason, naturally, is that epicenter stocks are more sensitive to lockdowns and benefit from economic re-opening. Hence, we should expect the epicenter stocks to rally.”

Read more:RBC unveils its 15 top biotech stock ideas for 2021 as the sector is poised to take off on the back of pandemic-related innovations and new funding

Lee said that the percentage of the US with declines in COVID-19 cases is at 62%. That’s the highest level since August. He also noted a recent comment from former FDA commissioner Dr. Scot Gottlieb, who said on Sunday that COVID-19 cases may be peaking nationally. This thinning out of cases could be a good sign for stocks that hinge on an economic reopening. 

Although this could be a temporary rollover of cases, and holiday gatherings could cause a spike in cases, Lee said COVID-19 is still rolling over earlier than he expected.  

Names in his basket of epicenter stocks include travel companies like MGM Resorts, Hilton Worldwide, Marriott, Norwegian Cruise Line, and Royal Caribbean, retailers including AutoNation, Harley-Davidson, Hasbro, L Brands, and Best Buy, and restaurants like Darden Restaurants and Starbucks.

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